Learning Curves and the Cyclical Behavior of Manufacturing Industries

Ž . Building on evidence that a productivity growth from learning by doing diminŽ . ishes as experience accumulates with a technology and b learning by doing is largely specific to each production technology, this paper models a firm’s decision of when to update its technology. The model implies that technology updates endogenously bring large drops in productivity. The model also implies that technology updates are more likely in a boom than in a recession since a high rate of production enables the firm to learn more quickly about the new technology. The forces in this model may help explain some features of plant and industry level Ž . data, such as the procyclicality of investment including plant investment spikes and the modest correlation between labor input and productivity. Journal of Economic Literature Classification Numbers: O31, L6, D92. Q 1998 Academic Press